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Below is Statement on RBI Monetary Policy By Dr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital

The 50 bps rate hike was in line with the expectations and the Indian equity market has taken it positively. The most important point in the Governor's speech was the statement that forward guidance "may even destabilise financial markets". However, the RBI is quite optimistic about the Indian economy and is fully in control in terms of inflation, currency, and Forex reserves. RBI is also very careful to not destabilize the financial markets.

It is clear that while the future rate hikes could have been indicated, the Governor believes, based on the actual impact of Fed's guidance on the US and global financial markets that such a guidance would destabilize the Indian financial markets.

The RBI Governor has clearly given a clue. It is a given that if the Fed will hike rates and RBI will have to follow suit. RBI also has the issue of no November meeting while the Fed has a November meeting. It becomes likely that RBI will do an out of turn meeting and rate hike in November. Therefore, the November meeting and rate hike cannot be ruled out.

On Inflation, the RBI expects it to come within its 6% upper band by Q4 FY23 and 5% by Q1 FY24. Inflation has most likely peaked for India. This means that RBI is mostly fighting the interest rate hikes of the Fed rather than domestic inflation which is relatively benign.

On Forex reserves to the Governor mentioned that nearly 67% of the drop in the reserves is due to mark down in the asset values due to increasing yields on the US bonds and not due to spending”

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